Sri Lanka’s Ceylon Tobacco Company (CTC) revealed a decline in cigarette sales for the March quarter compared to the previous year, resulting in a decrease in overall revenue amidst tax increments and an economic slowdown. The company reported a drop in revenue to 45.85 billion rupees from 46.93 billion rupees in the same period last year, with turnover-linked taxes also decreasing to 31.7 billion rupees from 34.2 billion rupees.
In a statement to shareholders, CTC attributed the decline in sales volume during the quarter to tax-induced price hikes, aligning with the government’s revenue proposals. Despite tax revenues remaining consistent with the September 23 quarter, they sharply declined from the December 2023 quarter, which witnessed an uptick in sales. CTC has previously highlighted a shift towards beedi consumption and an increase in smuggling following tax hikes.
While it has long been assumed that cigarette demand is inelastic, with a drop in sales compensated by higher tax revenues, the current situation suggests otherwise. Tax revenues have decreased from the previous year, indicating either a faster decline in actual consumption or a shift to other products, raising concerns about the efficacy of tax policies in curbing cigarette consumption and associated health risks.
Despite the challenges in sales, CTC reported profits of 6.8 billion rupees for the quarter, up from 5.999 billion rupees last year. This increase in profitability comes amid efforts to reduce certain costs, although expenses related to wages and raw materials have seen an increase. The company’s financial performance underscores the complex dynamics at play in the tobacco industry, where balancing public health concerns with economic considerations remains a constant challenge.